nep-exp New Economics Papers
on Experimental Economics
Issue of 2009‒02‒28
twelve papers chosen by
Daniel Houser
George Mason University

  1. Naturally-occurring sleep choice and time of day effects on p-beauty contest outcomes By David L. Dickinson; Todd McElroy
  2. Raising Revenue With Raffles: Evidence from a Laboratory Experiment By Alexander Matros; Wooyoung Lim; Theodore Turocy
  3. The Experimental Approach to Development Economics By Banerjee, Abhijit; Duflo, Esther
  4. Powerful Women: Does Exposure Reduce Bias? By Beaman, Lori; Chattopadhyay, Raghabendra; Duflo, Esther; Pande, Rohini; Topalova, Petia
  5. Money Matters: Evidence from a Large-Scale Randomized Field Experiment with Vouchers for Adult Training By Messer, Dolores; Wolter, Stefan
  6. Coarse Thinking and Collusion in Bertrand Duopoly with Increasing Marginal Costs By Siddiqi, Hammad
  7. Heterogeneity in Risky Choice Behaviour in a Broad Population By von Gaudecker, Hans-Martin; van Soest, Arthur; Wengström, Erik
  8. On the Nature, Modeling, and Neural Bases of Social Ties By Ridderinkhof, Richard; Stallen, Mirre; van Winden, Frans A.A.M.
  9. Vacancy Referrals, Job Search, and the Duration of Unemployment: A Randomized Experiment By Engström, Per; Hesselius, Patrik; Holmlund, Bertil
  10. Cognitive Dissonance as a Means of Reducing Hypothetical Bias By Alfnes, Frode; Yue, Chengyan; Jensen, Helen H.
  11. Does Coarse Thinking Matter for Option Pricing? Evidence from an Experiment By Siddiqi, Hammad
  12. A Test of Narrow Framing and its Origin By Luigi Guiso

  1. By: David L. Dickinson; Todd McElroy
    Abstract: We explore the behavioral consequences of sleep loss and time-of-day (circadian) effects on a particular type of decision making. Subject sleep is monitored for the week prior to a decision experiment, which is then conducted at 8 a.m. or 8 p.m. A validated circadian preference instrument allows us to randomly assign subjects to a more or less preferred time-of-day session. The well-known p-beauty contest (a.k.a., the guessing game) is administered to examine how sleep loss and circadian mismatch affect subject reasoning and learning. We find that the subject responses are consistent with significantly lower levels of iterative reasoning when ‘sleep deprived’ or at non-optimal times-of-day. A non-linear effect is estimated to indicate that too much sleep also leads to choices consistent with lower levels of reasoning, with an apparent optimum at close to 7 hours sleep per night. However, repeated play shows that sleep loss and non-optimal times-of-day do not affect learning or adaptation in response to information feedback. Our results apply to environments where anticipation is important, such as in coordination games, stock trading, driving, etc. These findings have important implications for the millions of adults considered sleep deprived, as well as those employed in shift work occupations. Key Words:
    Date: 2009
  2. By: Alexander Matros; Wooyoung Lim; Theodore Turocy
    Abstract: Lottery and raffle mechanisms have a long history as economic institutions for raising funds. In a series of laboratory experiments we find that total spending in raffles is much higher than Nash equilibrium predicts. Moreover, this overspending is persistent as the number of participants in the raffle increases. Subjects as a group do not strategically reduce spending as group sizes increase, in contrast to the comparative statics theory provides. The lack of strategic response cannot be explained by learning direction theory or level-$k$ reasoning models, although quantal response equilibrium can fit the observed distribution of choices. Much of the observed spending levels in the larger groups cannot be explained by financial incentives.
    JEL: C72 C92 D72
    Date: 2009–02
  3. By: Banerjee, Abhijit; Duflo, Esther
    Abstract: Randomized experiments have become a popular tool in development economics research, and have been the subject of a number of criticisms. This paper reviews the recent literature, and discusses the strengths and limitations of this approach in theory and in practice. We argue that the main virtue of randomized experiments is that, due to the close collaboration between researchers and implementers, they allow the estimation of parameters that it would not otherwise be possible to evaluate. We discuss the concerns that have been raised regarding experiments, and generally conclude that while they are real, they are often not specific to experiments. We conclude by discussing the relationship between theory and experiments.
    Keywords: development economics; randomized experiment
    JEL: O16
    Date: 2008–11
  4. By: Beaman, Lori; Chattopadhyay, Raghabendra; Duflo, Esther; Pande, Rohini; Topalova, Petia
    Abstract: We exploit random assignment of gender quotas across Indian village councils to investigate whether having a female chief councillor affects public opinion towards female leaders. Villagers who have never been required to have a female leader prefer male leaders and perceive hypothetical female leaders as less effective than their male counterparts, when stated performance is identical. Exposure to a female leader does not alter villagers' taste preference for male leaders. However, it weakens stereotypes about gender roles in the public and domestic spheres and eliminates the negative bias in how female leaders' effectiveness is perceived among male villagers. Female villagers exhibit less prior bias, but are also less likely to know about or participate in local politics; as a result, their attitudes are largely unaffected. Consistent with our experimental findings, villagers rate their women leaders as less effective when exposed to them for the first, but not second, time. These changes in attitude are electorally meaningful: after 10 years of the quota policy, women are more likely to stand for and win free seats in villages that have been continuously required to have a female chief councillor.
    Keywords: development planning and policy; economics of gender; non-labour descrimination; political economy
    JEL: J16 O2 P16
    Date: 2008–07
  5. By: Messer, Dolores (University of Bern); Wolter, Stefan (Swiss Co-ordination Center for Research in Education)
    Abstract: This paper presents the results of a randomized experiment analyzing the use of vouchers for adult training. In 2006, 2,400 people were issued with a training voucher which they were entitled to use in payment for a training course of their choice. User behavior was compared with a control group of 14,000 people. People in the treatment and in the control group were not aware at any time that they were part of an experiment. The experiment shows that the voucher had a significant causal impact on participation in training modules. Nevertheless, the increase was partially offset by a deadweight loss in excess of fifty percent.
    Keywords: field experiment, voucher, adult education, training, Switzerland
    JEL: C93 I22 J24
    Date: 2009–02
  6. By: Siddiqi, Hammad
    Abstract: Mullainathan, Schwartzstein, & Shleifer [Quarterly Journal of Economics, May 2008] put forward a model of coarse thinking. The essential idea behind coarse thinking is that agents put situations into categories and then apply the same model of inference to all situations in a given category. We extend the argument to strategies in a game-theoretic setting and propose the following: Agents split the choice-space into categories in comparison with salient choices and then choose each option in a given category with equal probability. We provide an alternative explanation for the puzzling results obtained in a Bertrand competition experiment as reported in Abbink & Brandts [Games and Economic Behavior, 63, 2008]
    Keywords: Laboratory experiments; Oligopoly; Price competition; Co-ordination games; Coarse Thinking
    JEL: L13 C90 D83 D43 C72
    Date: 2009–02–19
  7. By: von Gaudecker, Hans-Martin (Free University Amsterdam); van Soest, Arthur (Tilburg University); Wengström, Erik (University of Copenhagen)
    Abstract: We analyse risk preferences using an experiment with real incentives in a representative sample of 1,422 Dutch respondents. Our econometric model incorporates four structural parameters that vary with observed and unobserved characteristics: Utility curvature, loss aversion, preferences towards the timing of uncertainty resolution, and the propensity to choose randomly rather than on the basis of preferences. We find that all four parameters contribute to explaining choice behaviour. The structural parameters are significantly associated with socio-economic variables, but it is essential to incorporate unobserved heterogeneity in each of them to match the rich variety of choice patterns in the data.
    Keywords: risk aversion, loss aversion, uncertainty resolution, field experiments
    JEL: C90 D81
    Date: 2009–02
  8. By: Ridderinkhof, Richard; Stallen, Mirre; van Winden, Frans A.A.M.
    Abstract: This paper addresses the nature, formalization, and neural bases of (affective) social ties and discusses the relevance of ties for health economics. A social tie is defined as an affective weight attached by an individual to the well-being of another individual (‘utility interdependence’). Ties can be positive or negative, and symmetric or asymmetric between individuals. Characteristic of a social tie, as conceived of here, is that it develops over time under the influence of interaction, in contrast with a trait like altruism. Moreover, a tie is not related to strategic behavior such as reputation formation but seen as generated by affective responses. A formalization is presented together with some supportive evidence from behavioral experiments. This is followed by a discussion of related psychological constructs and the presentation of suggestive neural findings, based on the existing literature. We conclude with some suggestions for future research.
    Keywords: Affect; Modeling; Neuroeconomics; Social Ties
    JEL: D01 D64 D87 H41 I10
    Date: 2008–08
  9. By: Engström, Per (Uppsala University); Hesselius, Patrik (IFAU); Holmlund, Bertil (Uppsala University)
    Abstract: One goal of the public employment service is to facilitate matching between unemployed job seekers and job vacancies; another goal is to monitor job search so as to bring search efforts among the unemployed in line with search requirements. The referral of job seekers to vacancies is one instrument used for these purposes. We report results from a randomized Swedish experiment where the outcome of referrals is examined. To what extent do unemployed individuals actually apply for the jobs they are referred to? Does information to job seekers about increased monitoring affect the probability of applying and the probability of leaving unemployment? The experiment indicates that a relatively large fraction (one third) of the referrals do not result in job applications. Information about intensified monitoring causes an increase in the probability of job application, especially among young people. However, we find no significant impact on the duration of unemployment.
    Keywords: vacancy referral, job matching, job search, randomized experiment
    JEL: C99 J64 J68
    Date: 2009–02
  10. By: Alfnes, Frode; Yue, Chengyan; Jensen, Helen H.
    Abstract: Hypothetical bias is a persistent problem in stated preference studies. We propose and test a method for reducing hypothetical bias based on the cognitive dissonance literature in social psychology. A central element of this literature is that people prefer not to take inconsistent stands and will change their attitudes and behavior to make them consistent. We find that participants in a stated preference willingness-to-pay study, when told that a nonhypothetical study of similar goods would follow, state significantly lower willingness to pay than participants not so informed. In other words, participants adjust their stated willingness to pay to avoid cognitive dissonance from taking inconsistent stands on their willingness to pay for the good being offered.
    Keywords: apples; cognitive consistency; hypothetical bias; instrument calibration; willingness to pay.
    Date: 2009–02–23
  11. By: Siddiqi, Hammad
    Abstract: Mullainathan et al [Quarterly Journal of Economics, May 2008] present a model of coarse thinking or analogy based thinking. The essential idea behind coarse thinking is that people put situations into categories and the values assigned to attributes in a given situation are affected by the values of corresponding attributes in other co-categorized situations. We test this hypothesis in an experiment on financial options against the benchmark of arbitrage-free pricing. Firstly, we test whether a financial option is priced in analogy with its underlying stock (transference). Secondly, we test for whether variations in the analogy between a financial option and its underlying stock matter (framing). We find evidence in support of both transference and framing.
    Keywords: Coarse Thinking; Financial Options; Arbitrage-Free Pricing
    JEL: G14 G12 C91
    Date: 2009–02–19
  12. By: Luigi Guiso
    Abstract: I provide a test of narrow framing to explain why individuals turn down small positive expected value lotteries. Participants in a large survey have been asked whether they would accept a small lottery of winning 180 euros with probability of 1/2 or losing 100 euros with the same probability. To half of the sample, randomly selected, the lottery question was asked at the beginning of the interview; the other half made the decision immediately after they were asked to think about and report their subjective probability distribution of future earnings. Consistent with narrow framing, I find that individuals that were induced to bring their earnings risk to mind before facing the decision are signi.cantly less likely to turn it down. Furthemore, only those who actually say they are uncertain about their incomes are less likely to reject the lottery. I show that attitudes towards regret and reliance on intuition rather than reasoning are likely to drive the tendency to frame choices narrowly.
    Keywords: Narrow framing, loss aversion, intuitive thinking, reasoning, regret
    JEL: D1 D8
    Date: 2009

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